TI reports 1Q18 financial results and shareholder returns

DALLAS, April 24, 2018 /PRNewswire/ -- Texas Instruments Incorporated (TI) (NASDAQ: TXN) today reported first-quarter revenue of $3.79 billion, net income of $1.37 billion and earnings per share of $1.35. Earnings per share include 14 cents in tax-related benefits not in the company's original guidance.

Regarding the company's performance and returns to shareholders, Rich Templeton, TI's chairman, president and CEO, made the following comments:

"Revenue increased 11 percent from the same quarter a year ago. Demand for our Analog and Embedded Processing products continued to be strong in the industrial and automotive markets.

"Our cash flow from operations of $5.7 billion for the trailing 12 months again underscored the strength of our business model. Free cash flow for the trailing 12 months was up 17 percent from a year ago to $4.9 billion, or 32.1 percent of revenue. This reflects the quality of our product portfolio, as well as the efficiency of our manufacturing strategy, including the benefit of 300-millimeter Analog production.

"We have returned $5.1 billion to owners in the past 12 months through stock repurchases and dividends, consistent with our strategy to return to owners all of our free cash flow. Over the last 12 months, our dividends represented 45 percent of free cash flow, emphasizing their sustainability.

"TI's second-quarter outlook is for revenue in the range of $3.78 billion to $4.10 billion, and earnings per share between $1.19 and $1.39, which includes an estimated $10 million discrete tax benefit.

As a result of accounting rule ASC 260, which requires a portion of Net income to be allocated to unvested restricted stock units
(RSUs) on which we pay dividend equivalents, diluted EPS is calculated using the following:

Net income

$

1,366

$

997

Income allocated to RSUs

(11)

(10)

Income allocated to common stock for diluted EPS

$

1,355

$

987

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Balance Sheets

(Millions of dollars, except share amounts)

March 31,

2018

2017

Assets

Current assets:

Cash and cash equivalents

$

1,717

$

1,073

Short-term investments

2,362

1,976

Accounts receivable, net of allowances of ($8) and ($11)

1,454

1,337

Raw materials

144

102

Work in process

1,076

1,017

Finished goods

812

724

Inventories

2,032

1,843

Prepaid expenses and other current assets

1,025

811

Total current assets

8,590

7,040

Property, plant and equipment at cost

4,907

4,833

Accumulated depreciation

(2,171)

(2,332)

Property, plant and equipment

2,736

2,501

Long-term investments

271

241

Goodwill

4,362

4,362

Acquisition-related intangibles

866

1,184

Deferred tax assets

218

361

Capitalized software licenses

102

116

Overfunded retirement plans

215

102

Other long-term assets

147

71

Total assets

$

17,507

$

15,978

Liabilities and stockholders' equity

Current liabilities:

Current portion of long-term debt

$

500

$

378

Accounts payable

488

429

Accrued compensation

344

352

Income taxes payable

133

77

Accrued expenses and other liabilities

395

366

Total current liabilities

1,860

1,602

Long-term debt

3,578

2,980

Underfunded retirement plans

92

97

Deferred tax liabilities

53

36

Other long-term liabilities

1,282

624

Total liabilities

6,865

5,339

Stockholders' equity:

Preferred stock, $25 par value. Authorized - 10,000,000 shares

Participating cumulative preferred - None issued

—

—

Common stock, $1 par value. Authorized - 2,400,000,000 shares

Shares issued - 1,740,815,939

1,741

1,741

Paid-in capital

1,770

1,597

Retained earnings

35,619

33,595

Treasury common stock at cost

Shares: March 31, 2018 - 759,098,020; March 31, 2017 - 743,085,976

(28,096)

(25,767)

Accumulated other comprehensive income (loss), net of taxes (AOCI)

(392)

(527)

Total stockholders' equity

10,642

10,639

Total liabilities and stockholders' equity

$

17,507

$

15,978

TEXAS INSTRUMENTS INCORPORATED AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Millions of dollars)

For Three Months Ended

March 31,

2018

2017

Cash flows from operating activities

Net income

$

1,366

$

997

Adjustments to Net income:

Depreciation

137

139

Amortization of acquisition-related intangibles

80

80

Amortization of capitalized software

12

11

Stock compensation

70

68

Deferred taxes

(31)

9

Increase (decrease) from changes in:

Accounts receivable

(176)

(68)

Inventories

(97)

(53)

Prepaid expenses and other current assets

356

(71)

Accounts payable and accrued expenses

(51)

(78)

Accrued compensation

(372)

(356)

Income taxes payable

(131)

149

Changes in funded status of retirement plans

(15)

(14)

Other

(36)

(18)

Cash flows from operating activities

1,112

795

Cash flows from investing activities

Capital expenditures

(189)

(127)

Proceeds from asset sales

—

40

Purchases of short-term investments

(996)

(757)

Proceeds from short-term investments

1,455

1,120

Other

(4)

(9)

Cash flows from investing activities

266

267

Cash flows from financing activities

Repayment of debt

—

(250)

Dividends paid

(611)

(500)

Stock repurchases

(873)

(550)

Proceeds from common stock transactions

178

161

Other

(11)

(4)

Cash flows from financing activities

(1,317)

(1,143)

Net change in Cash and cash equivalents

61

(81)

Cash and cash equivalents at beginning of period

1,656

1,154

Cash and cash equivalents at end of period

$

1,717

$

1,073

Segment results

Amounts are in millions of dollars.

1Q18

1Q17

Change

Analog:

Revenue

$

2,566

$

2,256

14%

Operating profit

$

1,166

$

935

25%

Embedded Processing:

Revenue

$

926

$

803

15%

Operating profit

$

328

$

240

37%

Other:

Revenue

$

297

$

343

(13)%

Operating profit*

$

54

$

77

(30)%

* Includes Acquisition charges and Restructuring charges/other.

Compared with the year-ago quarter:

Analog: (includes Power, Signal Chain and High Volume)

Revenue increased due to Power and Signal Chain. High Volume was about even.

This release includes references to free cash flow and ratios based on that measure. These are financial measures that were not prepared in accordance with GAAP. Free cash flow was calculated by subtracting Capital expenditures from the most directly comparable GAAP measure, Cash flows from operating activities (also referred to as cash flow from operations).

We believe that free cash flow and the associated ratios provide insight into our liquidity, our cash-generating capability and the amount of cash potentially available to return to shareholders, as well as insight into our financial performance. These non-GAAP measures are supplemental to the comparable GAAP measures.

Reconciliation to the most directly comparable GAAP measures is provided in the table below.

Amounts are in millions of dollars.

For 12 Months Ended

March 31,

2018

2017

Change

Cash flow from operations (GAAP)

$

5,680

$

4,756

19%

Capital expenditures

(757)

(534)

Free cash flow (non-GAAP)

$

4,923

$

4,222

17%

Revenue

$

15,348

$

13,764

Cash flow from operations as a percent of revenue (GAAP)

37.0%

34.6%

Free cash flow as a percent of revenue (non-GAAP)

32.1%

30.7%

This release also includes references to an annual operating tax rate, a non-GAAP term we use to describe the estimated annual effective tax rate, a GAAP measure that by definition does not include discrete tax items. We believe the term annual operating tax rate more clearly communicates that discrete tax items are excluded from such rate. The term also helps differentiate from the effective tax rate, which includes discrete tax items. No adjustments are made to the estimated annual effective tax rate when using the term annual operating tax rate.

Notice regarding forward-looking statements

This release includes forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally can be identified by phrases such as TI or its management "believes," "expects," "anticipates," "foresees," "forecasts," "estimates" or other words or phrases of similar import. Similarly, statements herein that describe TI's business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those in forward-looking statements.

We urge you to carefully consider the following important factors that could cause actual results to differ materially from the expectations of TI or our management:

Market demand for semiconductors, particularly in our end markets;

Our ability to compete in products and prices in an intensely competitive industry;

Customer demand that differs from forecasts and the financial impact of inadequate or excess company inventory that results from demand that differs from projections;

Economic, social and political conditions in the countries in which we, our customers or our suppliers operate, including security risks; global trade policies; political and social instability; health conditions; possible disruptions in transportation, communications and information technology networks; and fluctuations in foreign currency exchange rates;

Evolving cybersecurity threats to our information technology systems or those of our customers or suppliers;

Natural events such as severe weather, geological events or health epidemics in the locations in which we, our customers or our suppliers operate;

Compliance with or changes in the complex laws, rules and regulations to which we are or may become subject, or actions of enforcement authorities, that restrict our ability to manufacture or ship our products or operate our business, or subject us to fines, penalties or other legal liability;

Product liability or warranty claims, claims based on epidemic or delivery failure, or other claims relating to our products, manufacturing, services, design or communications, or recalls by our customers for a product containing one of our parts;

Changes in tax law and accounting standards that can impact the tax rate applicable to us, the jurisdictions in which profits are determined to be earned and taxed, adverse resolution of tax audits, increases in tariff rates, and the ability to realize deferred tax assets;

A loss suffered by one of our customers or distributors with respect to TI-consigned inventory;

Financial difficulties of our distributors or their promotion of competing product lines to our detriment, or the loss of a significant number of distributors;

Losses or curtailments of purchases from key customers or the timing and amount of distributor and other customer inventory adjustments;

Our ability to maintain or improve profit margins, including our ability to utilize our manufacturing facilities at sufficient levels to cover our fixed operating costs, in an intensely competitive and cyclical industry and despite changes in the regulatory environment;

Our ability to maintain and enforce a strong intellectual property portfolio and maintain freedom of operation in all jurisdictions where we conduct business; or our exposure to infringement claims;

Instability in the global credit and financial markets that affects our ability to fund our daily operations, invest in the business, make strategic acquisitions, or make principal and interest payments on our debt;

Our ability to successfully integrate and realize opportunities for growth from acquisitions, or our ability to realize our expectations regarding the amount and timing of restructuring charges and associated cost savings; and

Impairments of our non-financial assets.

For a more detailed discussion of these factors, see the Risk Factors discussion in Item 1A of TI's most recent Form 10-K. The forward-looking statements included in this release are made only as of the date of this release, and we undertake no obligation to update the forward-looking statements to reflect subsequent events or circumstances.

About Texas Instruments

Texas Instruments Incorporated (TI) is a global semiconductor design and manufacturing company that develops analog ICs and embedded processors. By employing the world's brightest minds, TI creates innovations that shape the future of technology. TI is helping approximately 100,000 customers transform the future, today. Learn more at www.ti.com.

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